Is Bob right? If so, it could be painful for gold.

Key News German industrial orders declined by 2.1 percent during October, due mostly to weaker demand from other European countries, preliminary official data showed Monday. (AP) Dubai World may sell assets in the United Arab Emirates and abroad to repay its borrowings, a government official said. (Bloomberg)

Quotable â€śGoldâ€™s best year in three decades has yet to match the returns of an interest-bearing checking account for anyone who bought the most malleable of metals coveted for at least 5,000 years during the last peak in January, 1980.

Investors who paid $850 an ounce back then earned 44 percent as gold reached a record $1,226.56 on Dec. 3 in London. The Standard & Poorâ€™s 500 stock index produced a 22-fold return with dividends reinvested, Treasuries rose 11-fold and cash in the average U.S. checking account rose at least 92 percent. On an inflation-adjusted basis, gold investors are still 79 percent away from getting their money back.

â€śYou give up a lot of return for the privilege of sleeping well at night,â€ť said James Paulsen, who oversees about $375 billion as chief investment strategist at Wells Capital Management in Minneapolis. â€śIf the world falls into an abyss, gold could be a store of value. There is some merit in that, but you can end up holding too much gold waiting for the world to end. From my experience, the world has not ended yet.â€ť Bloomberg

FX Trading â€“ Is Bob right? I spoke to my father-in-law this weekend; he called to tell me he is digging through his walls now to see exactly how much inventory of gold he has on hand; his yard sale may begin soon if we see a couple more days like last Friday. Goldâ€™s down about $25 bucks this morning; Iâ€™ll keep you posted.

Gold has taken it on the chin the last couple of days. But, as dad saysâ€”to be expected given the move weâ€™ve witnessed (one might call it parabolic; though bulls wouldnâ€™t likely use that term). He has been right about gold, along with many others. Given our ugly gold track record, we are always cautious about our own comments. But we are thinking if a new environment emerges, my Friday comment that gold could see $700 before it sees $2,000 could gain plausibility quickly.

As unlikely as it might seem, the world may actually be on the mend. The US consumer has been at the core of our concerns. Fridayâ€™s non-farm payroll number, if not a major mistake, tells us Mr. Consumer has a chance of rebounding sooner than we expected. But we donâ€™t really even need a major rebound from Mr. Consumer. In the words of Barton Biggs (thatâ€™s where I first saw this phrase many years ago) we only need see things get less bad.

I told you that I donâ€™t watch much TV. But I do tune into CNBC on non-farm payroll days. It is always entertaining to watch Santelliâ€™s frustration with the economist of the day, especially on those Fridays. But one economist Santelli never seems able to fluster is Bob Barbera (Bob was not on last Fridayâ€”too bad). He of Lehman Brothers fame (his â€śCash is Trashâ€ť call in 1990, i.e. expecting rates to plummet, when I was a lowly ... and lousy ... stock broker there at the time, was right on the money). Bob is very good and has made some excellent calls for many years.

Bob attributes much of his success in forecasting to his mentor Hyman Minsky and to free market Austrian School economist Joseph Schumpeter (he of creative destruction fame). Merging these two views has allowed him to see things some economists havenâ€™t, Bob says in his new book, The Cost of Capitalism.

Over the past few months, even in the midst of some very ugly jobs numbers, Bob stayed cool while on CNBC, suggesting everything is on trackâ€”all we are seeing is in line with a standard recovery from recession; especially considering how severe the last one was. Bob was also quite happy with the performance of the Fed and Treasury, saying their actions were needed to stave off global depression as no one else could do it. Of course, that view is 180-degrees opposite of mine, but Bob may have had it exactly right again.

And here is the rub for gold: If Bob got it right we are in the process of a normal cyclical type of recovery (albeit below capacity growth given the public debt overhang). Jobs will eventually return, interest rates will go up, and the world wonâ€™t end.

Why bad for gold: 1) If sentiment shifts toward recovery mode, away from a financial system collapse mode, gold loses is fear premium, 2) If the central banks remove stimulus, the liquidity move in all financial assets will likely be in for adjustment, 3) If gold has to compete with interest rates for a change (part and parcel to central banks reining in credit), it may look less attractive as an investment class compared to cash.

What if anything does this have to do with currencies?

If this environmental transition does take place, we could possibly get back to a world where currencies are judged increasingly on their underlying fundamental values, instead of just pure liquidity ebbs and flows, i.e. risk appetite versus risk aversion. That would mean the exceedingly tight correlation of the last several years would start to breakdown. I would like that because it would mean not all people with overlay chart programs can be good currency analysts anymore.

One correlation has been tight for many cycles; gold and the dollar. Over the longer term time frame (going back to 1971 when major currencies began to float) a bull market in the dollar has coincided bear market in gold, and vice versa.

Is Bob right? Stay tuned.

Jack Crooks Black Swan Capital LLC www.blackswantrading.com

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